Recent Posts

The beleaguered city has been in financial distress for some time
now.

A financial travesty of an incinerator project burdened
Harrisburg with a crushing debt load (currently $300 million),
and advisors, city officials, the Pennsylvania legislature and
even Pennsylvania’s governor have all been involved in crafting a
solution.

Sadly for Harrisburg, it has been attempting to struggle out of
its financial troubles outside of bankruptcy.

In my opinion the next few years will see a severe weakening of
the taboo against municipal bankruptcies, as local government
officials face the reality that a chapter 9 bankruptcy filing is
in some cases the only way to right-size burdensome liabilities.

In a development that would shake municipal investors if they
were paying attention, the city council appears to have chosen to
pursue bankruptcy as the less onerous option (following the city
council’s rejection of a rescue proposal put forward by mayor
Linda Thompson, the threat of a takeover by the state has been
much discussed). City Controller Dan Miller approved of the
4-3 city council decision, noting of previously rejected rescue
plans: “They wanted to sell all of our assets and make Harrisburg
destitute for decades to come”.

City Councilman Brad Koplinski has suggested that $100 million in
concessions will be required of bond insurer Assured Guarantee
Municipal Corp (support for my contention that the terms of
Jefferson County's restructuring have essentially set a floor for
all municipal debt negotiations).

Bondholders take note: financially strained local governments are
reaching the point of needing to choose between making good on
their financial obligations and continuing to provide services.
When the decision becomes that stark, bondholders will lose every
time. There is no action by state legislatures that will induce
voters to prefer the uninterrupted servicing of bondholder debt
over the provision of police, fire and other local government
services.

Those who look to the ability of governments to levy taxes
understate the political environment. Just as local governments
have the ability to tax, taxpayers have the ability to vote. This
situation is not so much black and white as it is a shade of
grey.

About the author:

David Johnson is a partner with ACM Partners, a
boutique financial advisory firm providing due diligence,
performance improvement, restructuring and turnaround services to
companies and municipalities. He can be reached at 312-505-7238
or at david@acm-partners.com.